BoJ surprises as it holds off stimulus, delays inflation target

Tokyo / AFP

Bank of Japan (BOJ) shocked markets on Thursday as it held fire on fresh stimulus measures, sparking questions about whether there is anything left in its policy arsenal to kickstart a sliding economy.
Dealers were caught off guard by the decision, which sent the yen skyrocketing, especially after another set of weak economic data in the morning had turned up the heat on policymakers to ignite stalling growth.
The BoJ also cut its GDP outlook and pushed back a timeline for its ambitious 2.0 inflation target — now expected before early 2018 rather than by September 2017.
The move underscored the challenges of conquering years deflation that have weighed on growth.
The central bank’s consumer price target is a cornerstone of of Tokyo’s broader drive to reignite the world’s number three economy.
“This is the last chance for (BoJ governor Haruhiko) Kuroda,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
“But the reality is that achieving the inflation target is going to be extremely difficult.”
Kuroda on Thursday repeated that he “won’t hesitate” to pull the trigger on new stimulus, but said he wanted to see how a negative-rate policy announced in January was taking hold.
“I don’t think our ability to ease further has become limited,” Kuroda told reporters.
The rate move — which aims to encourage lending by essentially charging banks for storing some excess reserves in BoJ vaults — was widely panned as a desperate move to save Prime Minister Shinzo Abe’s faltering growth drive, dubbed Abenomics.
Markets had expected the BoJ would tinker with the new policy or expand its massive 80 trillion yen ($740 billion) annual asset-buying plan.
The yen soared on the decision to stay put, with the dollar plunging to 108.31 yen in the afternoon, from 111.78 yen
before the announcement.
Tokyo’s Nikkei stock index plunged more than three percent, with exporters hit by the yen surge.
“Markets now think the impact of any more BoJ easing measures is limited,” said Minori Uchida, head of Tokyo global markets research at Bank of Tokyo-Mitsubishi UFJ.
Official figures earlier on Thursday showed consumer prices fell the most in three years time.
The worse-than-expected fall — 0.3 percent in March from a year ago — came as separate data showed household spending remains weak, although factory output rebounded and the labour market was tight.
Japan’s economy has largely defied several years of central bank and government remedies aimed at boosting prices as well as broader activity.